If you were a public company, your biggest client would already be a disclosure item.
The accounting standard is specific. Under ASC 280, as the codification sets it out, if revenues from a single external customer reach 10% or more of a public entity’s revenues, the entity has to disclose that fact, the amount, and which segment reported it. Every year. Even if it only has one segment.
Ten percent. That is the level at which the profession that exists to be unexcitable decided investors have a right to be told.
Most independent consultancies and agencies I have seen run at thirty, forty, sometimes sixty percent from one account, and describe it as a good year.
The useful part of this is not the scolding. It is that the damage from concentration arrives long before the client leaves, it shows up in your own behavior rather than in your revenue, and by the time the risk is visible in the numbers you have usually lost the ability to do anything about it.
What the rule does and does not say
Worth getting right, because the surrounding commentary invents things.
The disclosure names the dependence rather than the customer: the entity does not have to say who it is. Companies under common control count as one customer, and each level of government counts as one, which catches firms who think three contracts with three agencies is diversification.
What the standard does not contain is the tidy risk bands you will see quoted, the ten percent is fine, twenty is a warning, thirty is dangerous business. Those are practitioner opinion dressed as accounting. The standard sets a disclosure trigger, not a safety limit.
I am using it here as a reference point rather than a rule for you. A ten-person firm cannot run at ten percent per client, because that implies ten clients and most firms that size have four. The point is the direction of the gap between what the capital markets consider material and what owner-managed firms consider normal.
The damage starts while everything is fine
Here is the part nobody discusses, and it is the whole reason to care about this early.
You stop raising prices. Not consciously. You run the numbers on a five percent increase across the book and then notice that the conversation with the big account carries a risk the others do not, so the increase happens everywhere except where most of the revenue is. Which means your largest client is also your cheapest, in a market where you have had three years of cost inflation.
You accept scope you would refuse. The out-of-hours request, the extra deliverable, the meeting that was not in the agreement. Each one is individually reasonable and declining it feels disproportionate to the money involved, because the money involved is all of it.
You stop selling. The concentrated client absorbs your best people and your own attention, so business development becomes the thing you do when there is time, and there is never time, precisely because the account is large. This is the mechanism that makes concentration self-reinforcing rather than self-correcting.
You start forecasting their business instead of yours. You find yourself tracking their funding round, their reorganisation, their new VP. That is a reasonable thing to do and it is also a symptom: you are managing an exposure rather than running a portfolio.
None of those four requires the relationship to be going badly. They happen while everybody is happy, which is why they never trigger a conversation.
The inversion
At some share of revenue, the relationship quietly changes category.
A supplier with ten clients can say no, can price to its own economics, can decline a project that does not fit. A supplier with one client that is half its revenue cannot do any of those things, and both sides know it, usually without discussing it.
At that point you are not a vendor with a position. You are a department that can be closed without a redundancy process.
The tell is whose calendar governs. If their planning cycle sets your year, their reorganisation determines your headcount and their approval timeline decides whether you can hire, you have the exposure of employment with none of the protection. The compensation for that is supposed to be freedom, and the freedom is what the concentration has taken.
Why the obvious fix does not work
Everybody knows the answer is to diversify. Almost nobody does it, and the reason is arithmetic rather than discipline.
Replacing a client who is half your revenue means finding several clients, which takes somewhere between six and eighteen months of consistent effort in most service categories. During that period the concentrated client is still consuming your capacity, and the effort has to come from somewhere.
So the window in which diversification is easy is the window in which it feels unnecessary, and the window in which it feels urgent is the one in which you cannot afford the hours. That is the trap, and it closes slowly.
Which leaves one honest route. You use the concentrated client’s money to buy the search for their replacement, deliberately and while the relationship is good. Ring-fence a share of that revenue, not a vague intention but an actual allocation, and spend it on the thing that generates the next three accounts. If that means the account is slightly less profitable this year, that is the premium on an insurance policy you currently do not have.
When it is genuinely fine
Three cases, and I would not argue with any of them.
You are early, and a large first client is how the business exists at all. Concentration is the price of having started, and the clock on fixing it starts at profitability rather than at signature.
The revenue is genuinely contracted for a multi-year term with a real termination cost, which converts an exposure into something closer to an asset. Read the termination clause before believing this one.
Or you have decided, explicitly, that this is the bet. Some firms build around one anchor client and do very well. The distinction is whether it was chosen and priced, or whether it happened and then got rationalised.
Where I come out
Work out the percentage this week. Not the gut feel, the actual share of last twelve months’ revenue from your largest account, with entities under common control counted as one.
If it is above a third, the number to watch next is not that one. It is how many hours a week anybody in your business spends on finding new clients, because that is the number that determines whether the first one is a temporary condition or your permanent shape.
And raise the price on your biggest client this year. Not because it will fix the exposure, but because the fact that the idea makes you uneasy is the clearest available measurement of how much of your independence you have already given away.
If you’d like to think through how to fund a diversification push without dropping the account that is paying for it, drop me a line on email, WhatsApp, phone or LinkedIn and we can have a quick chat, and my notes on how I work cover the rest. I’m taking on a small number of contracts at the moment, so I’ll tell you straight whether it’s something I could help with.